Secondary price cap set in WESM to ensure fair, reasonable power rates—ERC

By: Riza T. Olchondra - 10 years ago

FILE PHOTO

MANILA, Philippines—Regulators are adding another layer of price control in the power market for the rest of summer to “ensure the transparent and reasonable prices of electricity.”

In Resolution 8 Series of 2014 docketed May 6, the Energy Regulatory Commission (ERC) set a secondary price cap in the Wholesale Electricity Spot Market (WESM) during the months of May and June 2014.

The ERC resolution states that the WESM clearing price shall be lowered to P6,245 per megawatt-hour or P6.245 per kilowatt-hour when average prices breach the threshold of P8,186 per MWh or P8.186 per kWh over a 72-hour period. The second layer of price control could cut average power spot market rates by about 18.4 percent, ERC said, citing studies.

The secondary price cap will apply until average prices fall below the threshold. “An hourly evaluation of possible lifting of the secondary price cap shall be in place once the same is imposed,” ERC said in the resolution.

While the secondary cap is in effect, oil-based plants are entitled to recover additional compensation if the secondary price cap is not enough to cover the fuel and operations and maintenance cost of the facility. Claimants must submit supporting documents to WESM operator Philippine Electricty Market Corp. to be able to recover the cost difference.

The Department of Energy (DOE) has made several announcements saying power supply will be tight in Luzon this summer, especially around May, although it is unlikely that there will be power outages. ERC said market reports showed a weekly increase of at least 20 percent in WESM prices from February 24 to March 23. On the average, WESM prices for that week were 164 percent higher than the previous week, ERC said.

Demand would likely “further increase” in May and June amid tight supply, ERC said.

The WESM is designed such that the Manila Electric Co. (Meralco) and other buyers can get additional supply whenever electricity demand is higher than what the distribution utility contracted from power plant operators. Existing rules prioritize power suppliers with the lowest price offers for electricity buyers. However, the price paid is based on the last offer made to meet the demand, although a ceiling (called the “bid cap” or “price cap”) is set.

ERC earlier sought comments from “interested parties” on the proposed resolution and the deadline for sending feedback was April 22, 2014.

It may be recalled that tight power supply and high WESM prices resulted in a record generation charge hike of P4.15 per kWh in the December bill of the Manila Electric Co.’s (Meralco) customers. In December 2013, noting the impact of the Malampaya maintenance shutdown and WESM price spikes amid tight power supply, Meralco sought a rate increase of P4.15 per kWh. However, various groups questioned the rate surge and on December 23 the Supreme Court issued a temporary restraining order that in effect kept generation rates steady at P5.67 per kWh for the billing month of December.

On December 27, 2013, regulators temporarily set a lower price cap on WESM trades (P32,000 per MWh or P32 per kWh from the previous P62,000/MWh or P62/kWh) while further studies are conducted to prevent future power rate spikes. The new ceiling was to be in effect until the issuance of a new offer price cap, which was originally said to be “not later than 90 days” from the issuance of the joint resolution. The deadline has since been extended by another 60 days.

Come January 2014, Meralco said it decided to maintain the P5.67 per kWh in generation cost to avoid another price surge even though power generation costs—again partly due to WESM price spikes—were still high.

In a March 3 order, ERC told WESM operator Philippine Electric Market Corp. (PEMC) to recompute “unusually high” and “unjustified” spot rates that affected the billing months of December and January for customers of Meralco.

On March 18, the PEMC cut WESM rates for months in question by nearly 80 percent. PEMC issued a new bill for Meralco’s December 2013 supply month, which reflect on customer bills for January 2014. PEMC did not bill Meralco for the supply month of November, which reflects in the December 2013 Meralco bill. To recall, Meralco cannot yet bill customers for the rate hike in the billing month of December due to an extended Supreme Court order barring rate hike collection for Meralco customers.